Thursday, February 11, 2010

IBD: Riverbed Technology (RBVD) - Making the Network Faster Pays Off for Widely Disbursed Offices

One very good thing about the recent selloff is it helps to separate the stocks that are going up with the bathwater or as part of the rabid momentum trader crowd, versus those who have some seriously strong hands holding the shares.  One stock with a lot of relative strength is old portfolio holding Riverbed Technology (RVBD)

The last time we owned some was last July, and I almost snapped some up yesterday but decided to hold off.   I wish this stock would get cheaper at some point, but at the current 30ishx earnings - it is actually at the lower end of the range it has been for most of the years I've been following it.  If the S&P 500 can break back over 1100 and the "correction" is over, this is one of the names on my short list to jump into.

The company reported nice earnings earlier this month, and better than expected guidance.  Full report here.
  • Riverbed Technology  posted a quarterly profit that beat Wall Street expectations, helped by growth in its enterprise sales, and forecast first-quarter earnings that could beat analysts' estimatesRiverbed, which helps companies avoid bandwidth congestion, forecast first-quarter adjusted earnings of 17 cents to 18 cents per share, on revenue of $106 million-$109 million.
  • Analysts on average were expecting first-quarter earnings of 17 cents a share, on revenue of $104.8 million, according to Thomson Reuters I/B/E/S.
  • Fourth-quarter net income fell to $0.9 million, or 1 cent a share, from $23.3 million, or 33 cents per share, a year earlier. Excluding special items, the company earned 21 cents a share, on revenue of $16.1 million. Revenue rose 22 percent to $112.9 million. 
  • "The business seems to have returned to a normal type of seasonal progression," Canaccord Adams analyst Paul Mansky told Reuters by phone.

After being so focused on WAN (Wide Area Networks), it's bread and butter I am intrigued by some product launches coming out which could broaden the portfolio.  Lo and behold, those magic words "cloud computing" show up yet again.
  • The company also said it will introduce three new products, one of which will target optimizing the storage and public cloud environments, later this year. This new product could help the company to move beyond the classic definition of WAN optimization, into a more storage specific optimization.
  • "WAN optimization is their sweet spot, and they are by far the dominant vendor in this market," Mansky said.  It, however, remains to be seem how Riverbed's fortunes evolve as it moves to this storage specific optimazation, a market that is yet to fully emerge, Mansky said. 

Investors Business Daily does their normal nice write up, with an article out earlier this week:
  • Stock in Riverbed Technology has powered up through the downturn by boosting the productivity of corporate networks and their employees, thus providing a fairly quick return on the cost of its products.  Riverbed's (NasdaqGS:RVBD - News) gear helps customers boost the performance of their software applications that run over wide area networks. Such WANs can span large distances and even whole continents.  The appliances sit at both ends of a WAN, where they cache and compress data to reduce problems with bandwidth capacity, says Matthias Machowinski, an analyst with Infonetics, an industry research firm.  "Overall, the WAN optimization market has had a better performance relative to other equipment makers during the recession."
  • Riverbed's products can make applications such as e-mail or sales software run 10 to 100 times faster, according to Riverbed CEO Jerry Kennelly.  "We make networks run blazingly fast," he said. "That's a huge advantage because it brings compelling efficiency to the way you deploy your (information technology) assets."
  • Riverbed's appliances combine hardware and software to optimize software performance. The appliances can spot patterns in network traffic and then compress certain popular files for reuse, freeing up bandwidth.
  • Such WAN acceleration is a key part of the larger industry trends toward virtualization and cloud computing in data centers. With virtualization, data center managers can make each server perform like multiple machines, thus raising efficiency. WAN optimization and virtualization support cloud computing, in which software is accessed over an Internet browser, rather than being installed on a local computer.
  • Another advantage for Riverbed lies in its broad market appeal, adds Kennelly. He says the appliances can help all types of companies that have more than one office connected on a network -- from banks to manufacturers to health care providers.
  • Riverbed competes with Cisco Systems (NasdaqGS:CSCO - News) and Blue Coat Systems (NasdaqGS:BCSI - News). Riverbed was the leader with a 27.8% market share in the third quarter of last year, the most recent quarter for which data are available, according to market tracker Gartner. Blue Coat had a 23.7% market share, followed by Cisco with 22%.
  • This WAN optimization market is set to grow 25% to roughly $1.1 billion in 2010. 
  • The market for WAN optimization is less than 10% penetrated, according to company estimates. Riverbed's products can help customers centralize their data and applications into fewer data centers while speeding up network traffic, says Eric Wolford, Riverbed's chief marketing officer.

There should be a lot of opportunities overseas for Riverbed as it's heavily focused on domestic sales:
  • Riverbed revenue grew 18% last year to $394 million. Nearly 60% of Riverbed's sales come from the U.S., with about 16% from Europe and the Middle East. About three-fourths of Riverbed revenue is product-based, with the rest coming from services.
  • Riverbed has grown through the downturn by selling on greater efficiency that helps clients do more with their existing networks, rather than by adding more network capacity.

[Jun 29, 2009: Even Handed on Riverbed Technology on CBSMarketwatch
[Apr 8, 2009: Stimulus Fire Hydrant (Worldwide) Should Benefit Networking Companies / Broadband]
[Feb 5, 2008: Riverbed Technology Continues to Execute and the Stock Continues to Fall]
[Nov 27, 2007: Riverbed Technology - Fortune Article]

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